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| 5 minutes read

Questions raised by the Metaverse

In the first instance, the potential expansion of Intellectual Property (“IP”) usage brought about by the Metaverse is significant, and it won’t be long before traditional legal concepts are adapted and/or applied to it. The importance of IP to the global and commercial economy cannot be overstated. It is IP that protects and encourages innovation, allowing brands to establish foundations from which to market their products. IP within itself is essentially negative in nature, conferring rights that stop others from doing or using certain things without the consent of the owner. These ideas, designs and technology can then be policed in order to preserve and strengthen a company’s market position.

Consider a celebrity endorsement for a brand - John Doe might be paid xx by Nike to exclusively wear Nike gear. Say John has a virtual avatar, should his avatar wear Nike too? If he’s expressly contracted with Nike to do so, how will his use of Nike products within the Metaverse be moderated? In fact, how would Nike protect and license its name within the Metaverse?

These questions are already being considered by Nike, amongst others. Recently Nike filed for several different trademarks around the world, to distinguish virtual shoes and clothing. According to the U.S. Patent and Trademark Office, applications were filed for “Nike”, their infamous slogan “Just Do It” and their signature swoosh logo. These included trademarks for virtual goods and services such as “downloadable virtual goods” and retail store services featuring virtual goods. It is clear that Nike are preparing and therefore protecting their brand before immersing themselves into a new era of social and commercial interaction.

Nike is not alone, as an avalanche of large players, including GUCCI, Louis Vuitton, and Disney have all turned their attention to protecting their IP within the Metaverse. However, it is worth considering whether these rights should need specific protection at all.

Should brands have to make a distinction between protections on their existing product offering, which in most cases extend to virtual platforms, and the application of those products to a virtual world? Should protections offered by the advance of online sales and marketing not naturally extend the Metaverse (which is in itself part of the inevitable evolution of the internet)?

Nike recently issued a claim against online marketplace StockX for launching non-fungible tokens (“NFTs”) that used their trademark and portrayed the likeness of official Nike products. Nike alleges that StockX are using their brand to promote their platform and obtain potential customers, and that their NFT collection constitutes trademark infringement and trademark dilution. StockX is the leading global reseller of streetwear and thus holds an extraordinary inventory of Nike products that were linked to the corresponding NFT collection. The company therefore announced that the NFTs could be redeemed for physical items, as well as traded for other digital goods. The case therefore hinges on whether StockX’s NFTs should be considered a direct extension of its normal reselling process and are a digital receipt of ownership. This is just a glimpse of the potential trademark and IP issues concerning legal protection within online and virtual realms.

It is worth noting that the types of rights the Metaverse allows for have no doubt expanded. Going beyond the traditional sphere, which is now saturated with patents, trademarks and copyrights, the Metaverse provides new opportunities for industries to develop (and protect) their rights. Meta, formerly known as Facebook, recently filed a number of patents, partially to develop a system capable of creating algorithmic patterns that alter and tailor user experience within a virtual reality platform depending on the content most likely to generate a response from that user. This gives us an indication of how user data will be used in the Metaverse, which is not substantially different from how data is currently being used by Meta and other online communication platforms.

The reality is that the Metaverse is not a globally adaptable and open universe. Rather, it consists of a number of digital spaces controlled by independent entities. Each entity, and even developers within those distinct platforms will be able to contractually apply rules that govern the spaces which they have created. These rules will likely cover IP and how it is treated within each platform, including territoriality and royalty rates. Therefore, it is important for brands to become familiar with the rules of a platform before exposing their products to it.

Jurisdiction and territoriality are also key questions that have warranted extensive scrutiny from those still speculative about the Metaverse and its commercial appeal. While the Metaverse aspires of creating a universal jurisdiction whereby we are all interconnected, the reality is that these platforms are often owned and governed by a singular entity. It may therefore be necessary to establish IP licensing agreements with each platform provider in order to assure the protection of your brand.

In addition, the Metaverse is hugely influenced by user created content, so brands in particular should be ready for an increased interaction between their IP and content created by users in relation to that IP.

It is paramount that brands are aware of the risks associated with virtual reality and the unauthorised use of trademarks and copyright within these platforms. If parameters are not firmly set, this could create brand dilution. These concerns can be evidenced through an abundance of case law in the United States involving global businesses, as well as induvial content creators. An example of this is, Leo Pellegrino v Epic Games, Inc., No. 19-1806 (E.D. Pa. 2020), whereby a saxophonist who went viral on social media for his dance moves and social presence, sued the developer of video game Fortnite for creating a saxophone-playing avatar that mimicked this individual’s viral video (content).

In order to avoid the abovementioned issues, it is vital that businesses fully establish a presence within the Metaverse and exploit the opportunities for leveraging virtual reality as an alternate way of reaching consumers and achieving brand awareness in this emerging market. It will also facilitate the monitoring of user activity and help thwart any potential IP risks.

In our next piece, we will unfold the benefits of smart contracts and blockchain technology and explain how this can help eliminate potential IP issues within the virtual reality world.

Nike Accuses StockX of Trademark Infringement in Sales of NFTs

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